Tuesday, September 21, 2010

Not As Easy As ABCT

One of the most interesting aspects about the Austrian Business Cycle (ABCT)is how many people think that the ABCT is how the economy generally works in an overall sense. Many who know very little about Austrian economics seem to have heard about the ABCT. Like Richard who I know thinks that the ABCT is "bunk". I also am skeptical of the theory. To me the ABCT seems like an over simplification that does necessary seem to explain quirks in the economy(a vast system with billions of human personal decisions occurring synonymously impacting markets in ways that are both diverse and complex).

I thought it was interesting that in the podcast the speaker groups the those that don't agree with the Austrian business cycle as the Non-Monetary theorists and the Keynesians and those that support the ABCT are the monetary theorists, the Austrians, and the Neoclassical Economists. I though this was an over simplification as there are ton of well known economists in each of these groups that don't view the ABC as he presented them. I did a little research and one of these economists is one of the most well known American economists of the twentieth century. Funny enough he is the father of the Monetarists, Milton Friedman.

What does Milton have to say?

When interviewed about the Austrian business cycle in 1998 Friedman states the following:

"I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm."

PS-"More Caffeine" bad example I like the coffee :-) If anything this make this me say yay this is fun lets yes lower the discount rate :-( to me these are very different I'm not a fan of this commonly used example.